TREASURIES-U.S. 2-year, 10-year yields tumble to more than two-month low

By Gertrude Chavez-Dreyfuss
NEW YORK, March 15 (Reuters) - Benchmark 10-year and 2-year
U.S. Treasury yields on Friday fell to their lowest levels since
early January, weighed down by weaker-than-expected U.S.
economic data that suggested the Federal Reserve will hold
interest rates steady for the rest of the year.
Expectations that the Federal Reserve will strike a dovish
tone at next week's policy meeting also pressured yields,
analysts said.
Both U.S. 10-year and 30-year yields have declined in seven
of the last 10 sessions, reflecting a benign inflation outlook
and slowing growth in the world's largest economy.
Data showed on Friday that U.S. manufacturing output fell
0.4 percent in February, falling for a second straight month,
while factory activity in New York state was weaker than
expected this month with a reading of 3.7.
Following the data, U.S. 3- and 5-year yields briefly
inverted, which could augur ill for the economy.
Some analysts though said the movements between two short-dated
maturities does not really offer a clear insight on the bond
market's economic outlook.
"The data was broadly disappointing ... and that's why we
have seen this rally continue the way it has," said Ben Jeffery,
analyst at BMO Capital Markets.
In late morning trading, U.S. 10-year prices rose, as yields
fell to 2.581 percent from 2.63 percent late on
Thursday. Ten-year yields fell to a more than two-month low of
2.580 percent.
U.S. 30-year bond yields were up at 3.007 percent
, from 3.046 percent on Thursday.
On the short end of the curve, U.S. 2-year yields slipped to
2.433 percent, compared with Thursday's 2.461 percent
, after earlier dropping to 2.430 percent, the lowest
since January 4.
U.S. yields did inch higher after the better-than-expected
University of Michigan consumer sentiment report, which showed
an index of 97.8, higher than the consensus forecast and the
previous month's reading.
"As the weekend approaches, people are also setting up for
what might be a dovish FOMC (Federal Reserve Open Monetary
Policy Committee)" meeting, BMO's Jeffery said.
Analysts unanimously expect the FOMC to leave policy rates
unchanged.
"The more interesting development will be what the
'dot-plot' signals about their intentions for the rest of the
year," said Michael Feroli, chief U.S. economist at JP Morgan in
New York.
Fed officials' median projection on the number of rate
increases is commonly referred to as its "dot-plot."
"We suspect the median dot moves down from the two hikes
they signaled in December to either no hikes or one hike for
this year. We see somewhat higher odds of zero than one," Feroli
said.
March 15 Friday 10:47AM New York / 1447 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 2.395 2.4424 -0.010
Six-month bills 2.445 2.5093 -0.013
Two-year note 100-31/256 2.4357 -0.025
Three-year note 99-248/256 2.3858 -0.032
Five-year note 99-236/256 2.3917 -0.038
Seven-year note 100-32/256 2.4802 -0.045
10-year note 100-84/256 2.5871 -0.043
30-year bond 99-184/256 3.0143 -0.032
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 12.00 1.25
spread
U.S. 3-year dollar swap 10.00 1.00
spread
U.S. 5-year dollar swap 7.00 0.75
spread
U.S. 10-year dollar swap 1.75 0.75
spread
U.S. 30-year dollar swap -22.25 0.50
spread
(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan
Oatis)